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Banorte Say Several Changes Make Banxico Statement Less Hawkish

MEXICO
  • In Banorte’s view, several changes make the statement’s tone less hawkish. The overall tone suggests that the tightening cycle will continue, albeit likely at a slower pace relative to the last four decisions.
  • This is consistent with their view of +50bps in December, taking the reference rate to 10.50% by the end of the year. For 2023, Banorte reiterate their call of 25bps hikes each in February and March, which would result in an estimated terminal rate of 11.00%.
  • On forward guidance, they believe the key addition was “…the monetary policy stance already attained in this hiking cycle…” as a factor that they will consider for monetary policy ahead. In our view, this was similar to a new comment by the Fed in its last decision, which we interpreted as a clear sign that the pace of hikes could moderate.
  • They consider that the modifications to the inflation projections are consistent with downward surprises in the three new inflation reports released since September’s meeting, in which the headline moderated in annual terms, but the core kept climbing. Banorte also note that the balance of risks remains tilted to the upside, albeit not “significantly” anymore.
  • The market now sees with greater conviction a more modest pace in the hiking cycle, in tandem with the Fed. With this, the curve is fully pricing-in a 50bps hike in December and anticipates a terminal rate of 10.75%, below a previous level of 11.00%. Additionally, the market is pricing-in a decoupling at the start of an eventual easing in Mexico and the US, with cumulative adjustments of -220bps and -50bps, respectively, during the 2H23. This is consistent with our call that the debate in this front could intensify.
  • In their view, the MXN has a limited room for further appreciation as their models signal an overvaluation that exceeds 12.00%.
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  • In Banorte’s view, several changes make the statement’s tone less hawkish. The overall tone suggests that the tightening cycle will continue, albeit likely at a slower pace relative to the last four decisions.
  • This is consistent with their view of +50bps in December, taking the reference rate to 10.50% by the end of the year. For 2023, Banorte reiterate their call of 25bps hikes each in February and March, which would result in an estimated terminal rate of 11.00%.
  • On forward guidance, they believe the key addition was “…the monetary policy stance already attained in this hiking cycle…” as a factor that they will consider for monetary policy ahead. In our view, this was similar to a new comment by the Fed in its last decision, which we interpreted as a clear sign that the pace of hikes could moderate.
  • They consider that the modifications to the inflation projections are consistent with downward surprises in the three new inflation reports released since September’s meeting, in which the headline moderated in annual terms, but the core kept climbing. Banorte also note that the balance of risks remains tilted to the upside, albeit not “significantly” anymore.
  • The market now sees with greater conviction a more modest pace in the hiking cycle, in tandem with the Fed. With this, the curve is fully pricing-in a 50bps hike in December and anticipates a terminal rate of 10.75%, below a previous level of 11.00%. Additionally, the market is pricing-in a decoupling at the start of an eventual easing in Mexico and the US, with cumulative adjustments of -220bps and -50bps, respectively, during the 2H23. This is consistent with our call that the debate in this front could intensify.
  • In their view, the MXN has a limited room for further appreciation as their models signal an overvaluation that exceeds 12.00%.